The Central Bank of Nigeria (CBN) in pursuit of its cashless policy places limits on individual and corporate cash withdrawals across channels. But there are concerns that the limits may have greater negative consequences on the economy. As implementation begins, NewsClic Nigeria (newsclicng.com) Editor, Olaotan Falade in this report examines the implications of the revised limits; in view of the peculiarities of the Nigerian economy
The Central Bank of Nigeria (CBN), in a December 06, 2022 letter to Deposit Money Banks (DMBs) and other financial institutions, slashed the limits on cash withdrawals over the counter and via Automated Teller Machines (ATMs), PoS, and cheques, with individuals and companies’ cash withdrawals directly from banking halls capped at a maximum of N100,000 and N500,000 respectively in a week. Also, the maximum cash withdrawal through ATM was set at N100,000 per week, subject to a maximum of N20,000 cash withdrawal per day.
The CBN also directed that third party cheques above N50,000 shall not be eligible for payment over-the-counter but retained the N10 million limits earlier placed on clearing cheques.
The policy was announced in a letter to DMBs and other financial institutions, signed by CBN Director, Banking Supervision Department, Haruna Mustafa.
The letter, titled: Naira Redesign Policy- Revised Cash Withdrawal Limits was addressed to all Deposit Money Banks (DMBS) and Other Financial Institutions (Payment Service Banks (PSBs), Primary Mortgage Banks (PMB) and Microfinance Banks (MFBs).
Besides, individuals and companies seeking above-limit withdrawals must be made to provide and submit additional information to a special, purposely created CBN portal. These information include valid means of identification of the payee such as national identity, international passport, driver’s license; Bank Verification Number (BVN) of the payee and notarized customer declaration of the purpose for the cash withdrawal.
The decision is not unconnected to the CBN’s determination to curb inflation, reduce money supply in the system and make Nigerians embrace alternative channels of banking transactions that promote financial inclusion.
Following public outcry, the apex bank adjusted the limits in a letter dated December 21, 2022. Maximum weekly withdrawals across all channels for individuals were capped at N500,000, with three per cent processing fee for additional withdrawals, as against initial five per cent announced earlier. Companies’ limit was raised to N5 million with five per cent processing fee on additional withdrawals, as against 10 per cent earlier announced. The maximum amount for third-party cheques eligible for over-the-counter payment was also increased to N100,000 while the current limit of N10 million on cheques paid into account remains the same.
Between evolution and disruption
Most analysts have however expressed concerns that the limits would have rippled negative effects on the economy, especially small businesses.
Speaking with a cross-section of economic and financial pundits, they argued matter-of-fact that the policy, if anything, will cause more harm than good whether in the medium, short or long term.
For micro, small and medium enterprises (MSMEs) and small and medium enterprises (SMEs) alike, this policy will truly disrupt their businesses in many ways, albeit negatively.
The Lagos State Chairman of the Nigerian Association of Small and Medium Enterprise (NASME), Dr Adebayo Adams, said the policy would hit businesses, especially MSMEs.
“If other channels are well-organised, then it is good. However, every other thing is going to affect us because, as from December 15, 2022, most people will be skeptical about accepting old notes.
“Most people will not like to discard old naira notes with them because there is no point in taking away the one I have to the bank and find out the new naira notes are not yet available.
“So, it is going to have a serious effect on the local market. These people are selling on a daily basis at Ketu, Agboyi, Oyigbo market; most of them do not have PoS or ATM. So, it will affect the speed of transactions and movement of goods.
“Now, it is people with cash that will be able to buy goods. Because if I say I want to transfer and no one is taking the transfer from me, they will tell you they cannot accept that mode of payment because they have no bank account”.
One of the sectors that would be adversely affected by the new policy regime is the Point of Sale (PoS) operators.
One man who should know better is Victor Olojo, the National President, Association of Mobile Money and Bank Agents of Nigeria (AMMBAN).
Apparently miffed by what he described as a wrong-headed policy, Olojo said PoS operators would plan to protest as the policy was targeted at killing their source of livelihood.
Speaking in an interview, Olojo disclosed that the newly announced policy would have a negative impact on their business as it translated to the shutting down of PoS terminals.
He said, “This news is just breaking and a lot of PoS agents are already complaining bitterly. Some are calling for protests as this policy, which limits PoS transactions to N20,000, sends them out of business. Hence they have to return to their villages.”
Speaking on the impact of the new policy on individuals and the economy, the AMMBAN President said it would be really tough as Nigeria was still a cash-dominant society.
He said, “Nigerians should brace up, as this is a challenge that CBN is putting out to Nigerians to embrace technology. However, the difficulty would be felt as we still have a lot of transactions done with cash, especially those that are below the pyramid such as the market women and men who are petty traders, because this in essence means that once a bag of rice or flour is to be bought, which is above N20,000, it has to be via e-banking. Looking at it, how many of these people are technology-savvy?
“The CBN wants to achieve an agenda which is not exactly bad. However, a longer notice should have been given to those at the bottom of the pyramid. I believe that, eventually, the adoption would scale and people would have to get acquainted irrespective of the difficulty, embracing it in the long run.
“However, it is still very difficult because the technological infrastructure is still not there yet, and there are those who have had bad experiences with technology as well. The implication of this policy would slow down a lot and affect a lot of things, particularly those earning more than N20,000 daily.”
Olojo noted that his fears and concerns were that the policy was coming at a harsh period when the Nigerian economy was ill-prepared for it.
He added that there should be an adequate alternative before any process would be scrapped.
Echoing similar sentiments, a PoS operator, simply identified as Bola Bamidele said, “The new CBN policy will affect our business because pegging daily transaction limit to N20,000 is not helpful for us. For instance, a customer who wanted to transact business came to withdraw N500,000 today, I made my gains and he was able to do his own business. This will no longer be possible by January when the policy takes effect. The economy will suffer and insecurity will rise too because some operators will definitely go out of jobs.”
Also another operator who would not be named said the policy was designed to send PoS operators out of business. “This will really affect PoS business, a situation where customers can’t withdraw more than N20,000 daily means those who withdraw more than that normally will be limited.”
Managing Director, Afrinvest West Africa Limited, Ike Chioke, said people in smaller cities may find it difficult during the early implementation days.
He said that in blind spots where the PoS or internet banking will not work, there will be no other alternative than to move cash around.
He said limiting cash in such areas will present a major challenge for the businesses and communities. “I hope the monetary authorities have also put into planning measures to make sure that Nigerians are not overly impoverished by the system,” Chioke said.
The President of the Bank Customers Association of Nigeria, Dr. Uju Ogunbunka, said that the cashless policy’s intentions were understandable but the execution and timing were not right, stressing that these were areas where severe problems would emerge.
“From the cashless policy point of view, we should appreciate that, as much as possible, the government is trying to limit the use of cash for transactions, more so, now that they are redesigning the currency. And they may not have enough in print, so for it to go around, they have to find a way to limit us from using cash.
“The second thing is that the government wants to drive the use of online banking, which is good for
“At least, to the best of my knowledge, there is hardly any week without complaints in the banking hall. You will see people shouting with regard to transfer failures. Have we put enough structure to take care of some of these things? The answer is, we are yet to, we are making progress, yes, but we should give enough room and time for some of these things to play out rather than short-circuit the system.
“If all of us, including market women and men, have to go online today, can the infrastructure carry all of us through successfully? This question should be able to deal with some of these things.
“Some of us do not need too much cash to operate. For instance, if I go to the bank in a week and withdraw N100,000, what will I be spending that money on? I mean that should be enough to use for one week. If I can do other transactions online, why not? But it is not everybody that can do this, particularly those who are trading. Most of them still depend on people coming with cash and, then, they will carry the cash to the bank to pay in. This means there will still be a need for people to have cash; otherwise, what we are going to tell people is that you have to hold on till you have cash to do your transaction if you cannot do online banking.
“And the aforementioned can stall businesses. For example, the market woman going to buy food stuffs needs physical cash. Where will she do online banking with that? And can N20,000 today solve that problem for one week for a family? That’s not possible, so there might be a need for a rethink unless you are targeting people in the towns.
“Even in towns, I do not see the effectiveness of this policy let alone in the rural environs. It is a good policy, but we should streamline to see what is possible in the kind of economy we operate, especially with inflation at double- digit. The practical situation on ground does not support this policy.”
Mitigating the fears
But the CBN has allayed fears of any serious negative effects with the adjustment of the withdrawal limits, noting that 94 per cent of all cash transactions falls below the N500,000 new weekly cash withdrawal limit for individuals. The apex bank stated that 82 per cent of corporate transactions are also below the new limit.
The CBN argued that the December 21, 2022 adjustments to the revised cash withdrawal limits have sufficiently addressed fears over possible negative implications of the limits.
Governor, Central Bank of Nigeria (CBN), Mr. Godiwn Emefiele, said the new cashless policy was not based on any political consideration as the CBN is an independent institution, whose decisions are based research, data and the efforts of many teams working together across its different directorates.
Giving justification for the policy and the expected gains, he said the cashless policy will reduce cost of processing cash, cost of destroying mutilated cash, cost of printing new notes as well as reduce kidnapping and other forms of criminalities associated with cash movement.
The CBN Governor, who was represented by the Deputy Governor, Financial Systems Stability, Mrs Aisha Ahmad, spoke during a policy briefing at the House of Representatives on the redesigned naira notes and new cash withdrawal limits.
Emefiele said 94 per cent of all individual transactions will not be affected by even the fees on the limits.
The CBN Governor disclosed that electronic money transfers in the country as at October 2022 stood at N300 trillion from N3 trillion in 2012, when the cashless policy was introduced, representing about 7, 000 per cent increase.
He noted that in 2012 when the pilot scheme was launched in Lagos, the country had N48 billion in POS transactions, adding that this has increased to about N6 trillion today
He said the policy pronouncement on December 6 was a continuation of the cashless policy started 10 years ago and was in recognition of the positive changes recorded in the financial and payment system since it first launched.
“Today, we have a very robust payment system that includes bank branches, branches of micro-finance banks, POS machines, ATM machines, agent banking, E-Naira and many other options.
“To be specific, between the bank and the micro-finance banks, we have 6,500 locations, 900,000 POS terminals, 14,000 ATMs across the country and 1.4 million agents nationwide and every single local government in Nigeria has agent represented. We also have a proliferation of electronic transactions. Just by way of quick example, in 2012, we had N48 billion in POS transactions. Today, we have N6 trillion in POS transactions.
“On electronic transfers, we had N3 trillion in 2012. Today, we have 300 trillion as at October, 2022. That’s a 7,000 percent increase. We have also seen an improvement in financial inclusion to 54.1 per cent and lastly, perhaps, more importantly, we have seen the evolution of the Nigerian payment system on the global stage.
“Nigeria is judged 6th in the world for instant real payment and we are only behind countries like India, China, Thailand, Brazil and South Korea. We are the only African country in the top 10 and this has been as a result of some of the initiatives that have gone on. Also, electronic payment and real time data payments have been estimated to contribute about 0.67 percent to our GDP,” Emefiele said.
He added that the cashless policy also gives an opportunity to promote Nigeria’s positive image from money laundering perspective.
“Even the recently passed anti-money laundering law has limits for cash for a reason because cash is usually the medium by which some of these nefarious activities are done. Suffice it to say that the advantages around protecting people from armed robbery, kidnapping, terrorism financing goes without gainsaying,” Emefiele said.
But critics have also turned around the facts, with a poser to the apex bank, why the knee-jerk approach if Nigerians have voluntarily adopted electronic banking as massively as stated in the apex bank’s data? Many analysts said the apex bank should have focused on addressing technological challenges and issues of cyber security in the banking sector, describing the new revised limits as cart before the horse.
As the implementation continues, it is hoped that he apex bank will keep to its promise of monitoring the effects and where necessary, making adjustments to avoid complicating Nigerian economy, which already is projected with slow growth.